Sunday December 04, 2022

The debt trap

May 02, 2022

IMF does not present solution. It is predatory by design and in nature. It waits for the prey to fall in the trap. It works in a systematic way.

First, it introduces itself as a helping hand. It assumes the role of consultant with free advice, but makes sure that all ways lead to IMF or International Financial Institutions’ loans. Then the debt trap which paves way for the policy trap and ultimately colonises the country without shooting a single bullet. It is very disturbing, but not a new phenomenon. It has been happening since long. That’s why the UN experts are criticising it and want it to stop.

Pakistan is also facing the problem of debt amassing. Despite the fact that Pakistan is spending a substantial amount on debt-servicing but still debt is ballooning. Apart from public and multilateral debt, private debt is also showing a rising trend in the form of bonds. It is scary picture and has certain comparisons with Brazil, Mexico and Argentina. For example, in 1980 the total debt of Brazil was $72 billion and it spent $146 billion in debt-servicing till 1998. Despite huge debt-servicing, Brazil ends up with $231 billion debt in 1998. The story of Mexico and Argentina are not different from Brazil. Rather, Argentine story is more interesting and complicated. International Financial Institutions (IFIs) advised Argentina to privatise government entities to pay back the debt. It followed the advice. It resulted in disaster, as debt kept on rising despite the selling of the assets.

International Financial Institutions are applying the same strategy on Pakistan and have trapped it in merciless debt trap. IFIs are moving towards policy trap, as they have started to dictate Pakistan to bring new legislation according to their advice. State Bank of Pakistan is the first causality. It has become autonomous body with immense power, with prime goal of inflation control. The government has lost power to take decision and implement according to the need of the economy and objective of economic growth. The government is also working hard to privatise public assets to fulfil the IMF demands. The PTI had listed many public assets for privatisation but could not complete the process. The non-confidence vote has changed the government in Pakistan.

The PMLN and PPP are in the coalition government now. They were staunch opponents of PTI engagement with IMF and criticised the government for listening to dictation and surrendering Pakistan’s interest. However, after taking over the government, PMLN and PPP have changed their stance and are showing great enthusiasm to meet the demands of IMF. They are assuring IMF that they will be obeying the dictation whole heartedly. It is apparent from the government’s engagement with IMF that it will negotiate a new deal. IMF is pressurising new government to abolish subsidies.

It is a reality that elimination of subsidies will kick start a vicious cycle of events. On one hand, it will usher in a new era of inflation and will impact living standards of people. It will give impetus to poverty and food insecurity. On the other hand, State Bank of Pakistan will be in action to control inflation. As, after the amendment, State Bank has sole responsibility to control inflation at any cost, it does not have any other role to contribute to economic growth. It will impact the economic growth and discourage the investors.

Simultaneously, IMF is pressurising that Pakistan must go for privatisation of national assets to pay back the loans. Argentine and Brazil examples show that it will not work. Rather, it will create more problems, as on one hand, Pakistan will lose assets and on the other money will go back to IMF.

Thus, it can be inferred from the above discussion that IMF does not present any solution, rather will create more problems. Hence, Pakistan needs to look for viable and sustainable solutions.

First of all, Pakistan must eliminate all non-development expenditures. There should be no spending on protocol, security, meetings, refreshment etc. The government, institutions and politicians must learn to spend from their own resources.

Second, Pakistan must invest on the production sectors of economy like agriculture, industry and tourism etc. These sectors will give push to economy and pave a way for sustainable development. Pakistan has excellent opportunity in the form of China-Pakistan Economic Corridor (CPEC). Through good policy and implementation framework, Pakistan can benefit from the CPEC and put its economy on track.

Third, Pakistan needs to rebalance its focus on private sector and state-owned enterprises (SOEs). We need to come out of utopia of private sector and put focus on the revival of SOEs by applying business rational.

Lastly, to overcome the crisis of foreign reserves, all politicians and ruling elite must bring back their assets to Pakistan. It should be made compulsory and first condition to contest election in Pakistan or to be any government or state official. Pakistan is going through extraordinary times and it needs such measures. Otherwise, we will continue to fall into the trap of IMF and ultimately lose our sovereignty.